SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended DECEMBER 31, 1994 Commission File Number 1-5371
THE UNION CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 25-0848970
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(State of incorporation) (I.R.S. Employer Identification Number)
145 Mason Street, Greenwich, CT 06830
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(Address of principal executive offices) (Zip Code)
(203) 629-0505
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(Registrant's telephone number,including area code)
492 Route 46 East, Fairfield, NJ 07004
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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5,580,617 Common shares were outstanding as of February 8, 1995
- - --------------- ----------------------
THE UNION CORPORATION AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements and Exhibits
Page
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Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
December 31, 1994 (Unaudited) and
June 30, 1994 3
Condensed Consolidated Statements of
Operations (Unaudited), for the Six Months
Ended December 31, 1994 and 1993 4
Condensed Consolidated Statements of
Operations (Unaudited), for the Three Months
Ended December 31, 1994 and 1993 5
Condensed Consolidated Statements of
Cash Flows (Unaudited), for the Six Months
Ended December 31, 1994 and 1993 6
Condensed Consolidated Statement of
Shareholders' Equity (Unaudited), for the
Six Months Ended December 31, 1994 7
Notes to Condensed Consolidated Financial
Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 13
Part II. Other Information:
Item 1. Legal Proceedings 14 - 16
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17 - 19
Signatures 20
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1994 (Unaudited) and June 30, 1994
(In thousands)
December 31, June 30,
1994 1994
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ASSETS
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Current assets:
Cash $ 11,372 $ 11,579
Short-term investments, at cost,
which approximates market 20,859 22,600
Accounts receivable, trade, less allowance
for doubtful accounts of $629 and $552 5,382 4,660
Prepaid expenses and other current assets 3,454 3,846
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Total current assets 41,067 42,685
Property, plant and equipment, net 9,827 10,812
Cost of intangible assets from businesses acquired,
less accumulated amortization of $6,917 and $6,199 51,013 51,603
Other assets and deferred charges 2,088 2,135
Deferred income taxes 2,290 2,960
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Total assets $106,285 $110,195
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,384 $ 5,307
Accrued expenses 12,598 13,894
Income taxes payable 684 1,525
Current portion of long-term debt 209 204
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Total current liabilities 15,875 20,930
Long-term debt 20,868 20,973
Other liabilities 10,834 11,291
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Total liabilities 47,577 53,194
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Shareholders' equity:
Common stock, $.50 par value; authorized shares,
15,000; issued shares 8,476 and 8,476 4,238 4,238
Additional paid-in capital 43,225 43,225
Retained earnings 48,051 45,830
Less treasury stock, at cost, 2,941 and 2,886 shares (36,806) (36,292)
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Total shareholders' equity 58,708 57,001
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Total liabilities and shareholders' equity $106,285 $110,195
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3
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
For the Six Months Ended December 31, 1994 and 1993
(Dollars in thousands, except per share amounts)
1994 1993
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Operating revenues $47,286 $44,716
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Expenses:
Operating expenses 30,671 29,771
Selling, general and administrative expenses 10,487 9,763
Depreciation and amortization 2,088 2,217
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Total expenses 43,246 41,751
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Operating income 4,040 2,965
Interest expense (672) (500)
Interest income 529 345
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Income before income taxes and cumulative effect
of change in accounting for income taxes 3,897 2,810
Provision for income taxes 1,676 1,158
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Income before cumulative effect of change
in accounting for income taxes 2,221 1,652
Cumulative effect of change in accounting
for income taxes - 1,068
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Net income $ 2,221 $ 2,720
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Primary and fully diluted income per common share:
Income before cumulative effect of change
in accounting for income taxes $ .39 $ .26
Cumulative effect of change in accounting
for income taxes - .17
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Net income $ .39 $ .43
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------ ------
Average number of common and common equivalent
shares outstanding:
Primary 5,639,153 6,315,286
Fully diluted 5,671,058 6,322,861
4
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
For the Three Months Ended December 31, 1994 and 1993
(Dollars in thousands, except per share amounts)
1994 1993
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Operating revenues $23,917 $21,760
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Expenses:
Operating expenses 15,476 14,329
Selling, general and administrative expenses 5,116 4,816
Depreciation and amortization 1,025 1,113
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Total expenses 21,617 20,258
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Operating income 2,300 1,502
Interest expense (364) (247)
Interest income 295 171
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Income before income taxes and cumulative effect
of change in accounting for income taxes 2,231 1,426
Provision for income taxes 960 588
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Income before cumulative effect of change
in accounting for income taxes 1,271 838
Cumulative effect of change in accounting
for income taxes - -
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Net income $ 1,271 $ 838
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Primary and fully diluted income per common share:
Income before cumulative effect of change
in accounting for income taxes $ .22 $ .13
Cumulative effect of change in accounting
for income taxes - -
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Net income $ .22 $ .13
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Average number of common and common equivalent
shares outstanding:
Primary 5,675,750 6,299,084
Fully diluted 5,675,750 6,303,065
5
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended December 31, 1994 and 1993
(In thousands)
1994 1993
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Cash Flows From Operating Activities:
Net income $ 2,221 $ 2,720
Adjustments to reconcile income to net cash
provided by operations:
Cumulative effect of change in accounting
for income taxes - (1,068)
Depreciation and amortization 2,088 2,217
Deferred compensation expense 488 287
Provision for doubtful accounts 98 14
Provision for deferred income taxes 670 713
Changes in assets and liabilities:
Accounts receivable - (increase) decrease (820) 643
Prepaid expenses and other current assets - decrease 392 800
Other assets and deferred charges - decrease 47 14
Accounts payable and accrued expenses - (decrease) (1,389) (2,304)
Income taxes payable - (decrease) (841) (496)
Other liabilities - (decrease) (945) (489)
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Net cash provided by operating activities 2,009 3,051
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Cash Flows From Investing Activities:
Capital expenditures (385) (619)
Contingent payments related to the purchase
of Allied Bond & Collection Agency (128) (125)
Other - 6
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Net cash (used by) investing activities (513) (738)
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Cash Flows From Financing Activities:
Principal payments on long-term debt (50) (46)
Principal payments on capital lease obligations (50) (63)
Purchase of treasury stock, at cost (3,344) (1,325)
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Net cash (used by) financing activities (3,444) (1,434)
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Net (decrease) increase in cash and short-term
investments (1,948) 879
Cash and short-term investments at June 30 34,179 30,829
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Cash and short-term investments at December 31 $ 32,231 $ 31,708
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Supplemental disclosures of cash flow information:
Interest paid $ 598 $ 456
Income taxes paid 1,847 728
Supplemental disclosure of noncash investing and
financing activities:
Capitalized equipment lease obligations $ - $ 184
6
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
For the Six Months Ended December 31, 1994
(Dollars in thousands)
Additional
Common paid-in Retained Treasury
stock capital earnings stock
------ ---------- -------- --------
Balance at June 30, 1994 $ 4,238 $ 43,225 $ 45,830 $(36,292)
Net income - - 950 -
Purchase of treasury stock,
at cost (55,200 shares) - - - (514)
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Balance at September 30, 1994 4,238 43,225 46,780 (36,806)
Net income - - 1,271 -
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Balance at December 31, 1994 $ 4,238 $ 43,225 $ 48,051 $(36,806)
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7
THE UNION CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The amounts set forth in this Form 10-Q have not been audited by
independent auditors; however, in the opinion of the management of The
Union Corporation (the "Company"), all adjustments (including normal
recurring accruals) necessary for a fair statement of the results of such
periods have been made.
The financial statements included in this Form 10-Q are presented in
accordance with the requirements of the form and may not include all
disclosures required by generally accepted accounting principles. For
additional information, reference is made to the Company's Annual Report
for the year ended June 30, 1994.
1. ACCOUNTING CHANGE - ACCOUNTING FOR INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", effective July 1, 1993. Although the
change in accounting for income taxes did not have a material effect on
"Income before cumulative effect of change in accounting for income taxes"
for the six months ended December 31, 1993, the cumulative effect of the
change increased net income by $1,068,000, or $.17 per share.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained very strong and liquid at
December 31, 1994 with cash and short-term investments totaling $32,231,000,
working capital of $25,192,000 and net worth of $58,708,000. During the six
months ended December 31, 1994, the net cash provided by operating activities
was $2,009,000 compared to $3,051,000 a year ago. The decline in net cash
provided by operating activities in the first six months of fiscal 1995 was
principally attributable to an increase of $1,119,000 in income taxes paid, an
increase of $350,000 in cash outflows charged against Capital Credit
Corporation's ("Capital Credit") restructuring provision and an increase of
$500,000 in disbursements related to the Company's discontinued operations,
partially offset by an increase of $569,000 in "Income before cumulative effect
of change in accounting for income taxes". The Company's capital spending
during the six months ended December 31, 1994 principally represents costs
related to the purchase of computer, telecommunications and office equipment and
was slightly lower than that of a year ago.
During the six month periods ended December 31, 1994 and 1993 the Company
purchased, with available funds, 55,200 shares and 111,800 shares, respectively,
of its common stock for approximately $514,000 and $1,325,000, respectively.
The Company also paid $2,830,000 in July 1994 for 290,600 shares of its common
stock that was purchased in June 1994. As of February 8, 1995, the Company
holds approximately 2,941,000 shares of its common stock at an aggregate cost of
approximately $36,806,000. Future purchases, if any, by the Company of its
common stock will be funded with available funds.
In December 1992, the Company completed the acquisition of Allied Bond &
Collection Agency ("Allied Bond"), a business engaged in providing collection
services on a contingency fee basis throughout the United States, for an initial
purchase price of approximately $40,300,000, which includes acquisition related
costs. In addition, contingent payments not to exceed approximately $8,300,000
may be payable by the Company based upon Allied Bond attaining certain earnings
levels over the five and one-half year period ending June 30, 1998. As of
December 31, 1994, approximately $506,000 of such contingent payments have been
made. The acquisition was financed in part from $20,000,000 borrowed under an
existing unsecured $25,000,000 two year revolving line of credit furnished by a
bank which was scheduled to convert to a three year term loan on December 31,
1994 (the "Credit Agreement"). During fiscal 1995 the bank extended the
revolving line of credit until December 31, 1996, at which time the revolving
line of credit will convert to a three year term loan.
Under the new terms of the Credit Agreement, the aggregate principal
amount outstanding under the revolving line of credit on December 31, 1996 must
be repaid by the Company in twelve quarterly installments commencing
March 31, 1997 and ending December 31, 1999. Each of the first eleven
installments must be in an amount equal to one-twentieth of the outstanding
loan balance on December 31, 1996, with the twelfth installment equal to the
amount necessary to repay the then unpaid principal amount of the loan. The
loans bear interest, at the Company's option, at either the bank's base rate,
which is announced by the bank from time to time; or at 3/4% above the bank's
Eurodollar rate during both the revolving and term loan periods. At
December 31, 1994 the interest rate, which
9
is reset periodically, on the revolving term loan was approximately 6%. As of
February 8, 1995, the Company was contingently liable for outstanding letters of
credit aggregating approximately $1,621,000 which, combined with the revolving
line of credit outstanding, reduced the amount available under the Credit
Agreement to approximately $3,379,000.
The Company and certain subsidiaries are involved in litigation and
administrative proceedings described in Part II, Item 1 of this report. The
Company periodically reviews and updates the status of these matters and the
past costs incurred with respect to each. Estimates of future costs are based
upon available data. Management believes that reserves established to meet
known and potential environmental liabilities for the pending environmental
proceedings referred to above are adequate, based on current information,
subject to the outcome of a matter involving a site where a subsidiary fully
performed a settlement with the federal government which has reopened the
matter. However, there is no way to be certain that future developments
relating to environmental matters will not involve additional substantial costs
that may require future charges to earnings. The Company does not currently
anticipate that the resolution of the Legal Proceedings and the Other matters
described in Part II, Item 1 of this report will have a material adverse impact
on the Company's overall financial condition, given its available cash and
short-term investments, nor that the resolution of the Legal Proceedings
described on page 14 will have a material adverse impact on the Company's future
results of operations.
Management believes that current cash and short-term investments and the
Company's future cash flows from operations are sufficient to provide for
anticipated working capital, debt service and capital expenditure requirements.
SIX MONTHS ENDED DECEMBER 31, 1994 VS. SIX MONTHS ENDED DECEMBER 31, 1993
OPERATING REVENUES
Operating revenues increased to $47,286,000 for the six months ended
December 31, 1994 compared with $44,716,000 for the six months ended December
31, 1993. Revenues at Transworld Systems, Inc. ("Transworld Systems") were
$28,531,000 compared with $26,161,000 a year ago. Transworld Systems increase
in revenues is partially due to an acceleration of customer orders prior to a
scheduled price increase for its fixed-fee letter service in the second quarter
of fiscal 1995. The Transworld Systems price increase was in response to the
United States postal rate increase that took effect on January 1, 1995.
Revenues at Allied Bond increased by 7% during the first six months of fiscal
1995, while revenues at Capital Credit decreased by approximately $700,000
compared with results a year ago, primarily due to lower placements from a major
client.
Operating Expenses
Operating expenses increased by $900,000 for the six months ended December
31, 1994 compared with 1993. The increase was attributable to increases in
operating expenses at Transworld Systems and Allied Bond that were in line with
their respective increases in operating revenues, partially offset by a decrease
in operating expenses at Capital Credit. The decrease in operating expenses at
Capital Credit reflects lower compensation and collection costs, both of which
decreased at a rate proportionally greater than the decrease in operating
revenues at Capital Credit.
10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $724,000 for the
six months ended December 31, 1994 compared with 1993. The increase was
attributable to an increase in Corporate office expenses, partially offset by
decreases at Transworld Systems, Capital Credit and Allied Bond. The increase
in Corporate office expenses primarily resulted from approximately $600,000 of
legal fees related to discontinued operations of the Company and, to a lesser
extent, increased deferred compensation expense. In the first six months of
fiscal 1994 such legal fees were charged against reserves established for
discontinued operations of the Company.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased by $129,000 for the six
months ended December 31, 1994 compared with the six months ended December 31,
1993. The decrease was due to decreases at Allied Bond and Transworld Systems,
partially offset by an increase in depreciation expense at Capital Credit.
OPERATING INCOME
Operating income increased to $4,040,000 for the six months ended December
31, 1994 from $2,965,000 for the six months ended December 31, 1993 due to
increases at Transworld Systems, Allied Bond and Capital Credit, partially
offset by higher legal fees related to discontinued operations of the Company
and, to a lesser extent, increased deferred compensation expenses at the
Corporate office. Transworld Systems reported a 21% increase in operating
income to $6,680,000, before amortization of goodwill, compared with $5,525,000
a year ago and an operating margin in excess of 22% for the first six months of
fiscal 1995. Allied Bond reported an increase in operating income, compared
with a year ago, after absorbing the amortization of goodwill and depreciation
expense related to its acquisition and Capital Credit operated profitably during
the first six months of fiscal 1995 compared to an operating loss of
approximately $600,000 a year ago.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased by $172,000 for the six months ended December
31, 1994 compared with December 31, 1993 principally due to an increase in the
interest rate charged for the borrowings under the Credit Agreement. Interest
income increased by $184,000 for the six months ended December 31, 1994 compared
with a year ago, due to higher average short-term interest rates.
During the six months ended December 31, 1994, the Company primarily
invested in commercial paper and U.S. government securities, both with short-
term maturities, and overnight time deposits. During the six months ended
December 31, 1993, the Company primarily invested in U.S. government securities
with short-term maturities and overnight time deposits.
11
INCOME TAXES
The Company's effective income tax rate was 43% for the six months
ended December 31, 1994 and 41% for the six months ended December 31, 1993. The
increase is primarily the result of increased state income taxes. The Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", effective July 1, 1993. Although the change in accounting for
income taxes did not have a material effect on "Income before cumulative effect
of change in accounting for income taxes" for the six months ended December 31,
1993, the cumulative effect of the change increased net income by $1,068,000, or
$.17 per share.
THREE MONTHS ENDED DECEMBER 31, 1994 VS. THREE MONTHS ENDED DECEMBER 31, 1993
OPERATING REVENUES
Operating revenues increased to $23,917,000 for the three months ended
December 31, 1994 compared with $21,760,000 for the three months ended December
31, 1993. Revenues at Transworld Systems, Inc. were $14,560,000 compared with
$12,678,000 a year ago. Transworld Systems increase in revenues is partially
due to an acceleration of customer orders prior to a scheduled price increase
for its fixed-fee letter service in the second quarter of fiscal 1995. The
Transworld Systems price increase was in response to the United States postal
rate increase that took effect on January 1, 1995. Revenues at Allied Bond
increased by 9% during the current fiscal quarter, while revenues at Capital
Credit decreased by approximately $300,000 compared with results a year ago,
primarily due to lower placements from a major client.
OPERATING EXPENSES
Operating expenses increased by $1,147,000 for the three months ended
December 31, 1994 compared with 1993. The increase was attributable to
increases in operating expenses at Transworld Systems and Allied Bond that were
in line with their respective increases in operating revenues, partially offset
by a decrease in operating expenses at Capital Credit. The decrease in
operating expenses at Capital Credit reflects lower compensation and collection
costs, both of which decreased at a rate proportionally greater than the
decrease in operating revenues at Capital Credit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $300,000 for the
three months ended December 31, 1994 compared with 1993. The increase was
attributable to an increase in Corporate office expenses, partially offset by
decreases at Capital Credit and Allied Bond. Selling, general and
administrative expenses at Transworld Systems were essentially unchanged in the
second fiscal quarter of 1995 compared with a year ago. The increase in
Corporate office expenses primarily resulted from approximately $300,000 of
legal fees related to discontinued operations of the Company and, to a lesser
extent, increased deferred compensation expense. In the second quarter of
fiscal 1994 such legal fees were charged against reserves established for
discontinued operations of the Company.
12
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased by $88,000 for the three
months ended December 31, 1994 compared with the three months ended December 31,
1993. The decrease was due to decreases at Allied Bond and Transworld Systems,
partially offset by an increase in depreciation expense at Capital Credit.
OPERATING INCOME
Operating income increased to $2,300,000 for the three months ended
December 31, 1994 from $1,502,000 for the three months ended December 31, 1993
due to increases at Transworld Systems, Allied Bond and Capital Credit,
partially offset by higher legal fees related to discontinued operations of the
Company and, to a lesser extent, increased deferred compensation expenses at the
Corporate office. Transworld Systems reported a 29% increase in operating
income to $3,532,000, before amortization of goodwill, compared with $2,732,000
a year ago and an operating margin in excess of 23% in the second quarter of
fiscal 1995. Allied Bond reported an increase in operating income, compared
with a year ago, after absorbing the amortization of goodwill and depreciation
expense related to its acquisition and Capital Credit operated profitably during
the second quarter of fiscal 1995 compared to an operating loss of approximately
$200,000 a year ago.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased by $117,000 for the three months ended December
31, 1994 compared with December 31, 1993 principally due to an increase in the
interest rate charged for the borrowings under the Credit Agreement. Interest
income increased by $124,000 for the three months ended December 31, 1994
compared with a year ago, due to higher average short-term interest rates.
During the three months ended December 31, 1994, the Company primarily
invested in commercial paper and U.S. government securities, both with short-
term maturities, and overnight time deposits. During the three months ended
December 31, 1993, the Company primarily invested in U.S. government securities
with short-term maturities and overnight time deposits.
INCOME TAXES
The Company's effective income tax rate was 43% for the three months
ended December 31, 1994 and 41% for the three months ended December 31, 1993.
The increase is primarily the result of increased state income taxes.
13
PART II - OTHER INFORMATION (UNAUDITED)
ITEM 1. LEGAL PROCEEDINGS:
In addition to the continuing environmental clean-up efforts and other matters
described below, the Company and certain subsidiaries are parties to a number of
lawsuits arising in the ordinary course of business.
In June 1991, two stockholder class actions were brought, and then consolidated,
against the Company, Capital Credit, certain directors and current and former
executive officers of the Company, and certain former directors and officers of
Capital Credit, seeking damages under the securities laws in connection with the
misstatement by the Company of certain quarterly financial statements in fiscal
1990 and 1991. The Company and the individual defendants denied any and all
wrongdoing or liability and vigorously defended the action. In order to end the
substantial expense and distraction of continued litigation, the Company settled
the action, which settlement has been approved by the court. All claims against
the Company and the other defendants have been dismissed with prejudice. The
settlement will not exceed $1,500,000 with the Company and its insurer each
paying one-half of the settlement amount and related legal costs. That portion
of the settlement amount that is not covered by insurance will be charged
against existing reserves, substantially all of which had been recorded in prior
fiscal years.
In a lawsuit brought in 1993 by three individuals engaged by Transworld Systems
as independent contractors, in which it was alleged that Transworld Systems had
improperly treated the plaintiffs as independent contractors rather than
employees, all of the asserted claims have been dismissed by the Court with
prejudice.
Some of the same persons and others have also brought suit against Transworld
Systems and certain of its directors and officers, alleging breach of contract
and mental distress as a result of Transworld Systems' failure to supply
plaintiffs with copies of a monthly publication distributed by Transworld
Systems. One person has also brought suit alleging wrongful termination. The
claims in this action against Transworld Systems have been reviewed by counsel
and, based upon their assessment, management has concluded that the claims are
without merit.
Based on current estimates and information, the Company does not believe that
the ultimate resolution of the above legal matters will have a material adverse
impact on the Company's overall financial condition or future results of
operations.
14
ENVIRONMENTAL
Current commercial operations of the Company and its subsidiaries do not involve
activities affecting the environment. However, the Company is a party in
several pending environmental proceedings involving the federal Environmental
Protection Agency and comparable state agencies in Indiana, Maryland,
Massachusetts, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All
of these matters relate to discontinued operations of former divisions or
subsidiaries for which the Company has potential continuing responsibility.
One group of the Company's known environmental proceedings relates to Superfund
or other sites where the Company's liability arises from arranging for the
disposal of allegedly hazardous substances in the ordinary course of prior
business operations. In most of these "generator" liability cases, the
Company's involvement is considered to be DE MINIMUS (i.e. a volumetric share of
approximately 1% or less) and in each of these cases the Company is only one of
many potentially responsible parties. From the information currently available,
there are a sufficient number of other economically viable participating parties
so that the Company's projected liability, although legally joint and several,
is consistent with its allocable share of liability. At one "generator"
liability site, the Company's involvement is potentially more significant
because of the volume of waste contributed in past years by an inactive
subsidiary. Insufficient information is available regarding the need for or
extent and scope of any remedial actions which may be required. The Company has
recorded what it believes to be a reasonable reserve for this potential
liability.
The second group of matters relates to environmental issues on properties
currently or formerly owned or operated by a subsidiary or division of the
Company. These cases generally involve matters for which the Company or a
subsidiary is the sole or primary responsible party. In one such case, however,
although the affected subsidiary fully performed a settlement with the federal
government, the government has reopened the matter. A group of solvent
responsible parties has completed an extensive investigation of the site under a
consent order with the Environmental Protection Agency and submitted Remedial
Investigation and Feasibility Study Reports to the Environmental Protection
Agency, which outline a range of various remedial alternatives for the site.
The actual costs associated with the remedial actions to be taken at the site
cannot be determined until a Record of Decision is issued by the Environmental
Protection Agency. Although it disputes liability because of the prior
settlement, the Company may be exposed to additional substantial liability.
This and some of the other sites involving the Company or a subsidiary are at a
stage where an assessment of liability, if any, cannot reasonably be made.
It is the Company's policy to comply fully with all laws regulating activities
affecting the environment and to meet its obligations in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on the Company's likely allocated share among viable parties.
Reserves for liability for sites on which former operations were conducted are
based on cost estimates of remedial actions projected for these sites. Where
insufficient information is available regarding projected remedial actions for
these "generator" liability cases, the Company has recorded what it believes to
be reasonable estimates of its potential liabilities. All known environmental
claims are periodically reviewed by the Company, where information is available,
to provide reasonable assurance that adequate reserves are maintained. Reserves
15
recorded for environmental liabilities are not net of insurance or other
expected recoveries. No significant expenses related to environmental matters
were recorded by the Company during the six months ended December 31, 1994 or
the three years ended June 30, 1994 due to the adequacy of previously recorded
reserve balances. Management believes that reserves established to meet known
and potential environmental liabilities are adequate based on current
information, subject to the outcome of the aforementioned matter involving the
site where a settlement with the federal government has been reopened. However,
there is no way to be certain that future developments relating to environmental
matters will not involve additional substantial costs that may require future
charges to earnings.
OTHER
The Company sold the assets and business of its Gichner Systems Group (the
"Division") to Gichner Systems Group, Inc. (the "Purchaser") in 1989. In 1991
the Purchaser informed the Company that false pricing information might have
been supplied by former officers of the Division, who were also members of the
group that purchased the Division from the Company, in connection with
government contracts negotiated prior to the sale. After investigation, those
of the former officers who were then working for the Purchaser were terminated
for cause, and the Company and the Purchaser have tendered to the Department of
Defense a report of the results of their investigation to date. In addition to
possible civil proceedings by the government, the U.S. Department of Justice is
investigating this matter and could institute criminal proceedings against the
Company as a result of the prior actions of the aforementioned former officers
of the Division. There are a number of variables which could reduce or increase
the Company's liability, if any, to the government and therefore it is not
possible at this time to quantify the impact, if any, on future results of
operations. The Purchaser has also made claims against the Company based on
provisions in the purchase agreement. The Purchaser claims that the Company is
required to indemnify Purchaser for all costs and expenses related to this
matter which are incurred by Purchaser as a result of actions taken by former
Division employees of the Company prior to the sale of the Division to the
Purchaser. The Company has denied liability to the Purchaser. Two former
officers of the Division filed suit against the Company for retirement benefits
which the Company terminated when their alleged misconduct was reported to the
Company. All of their claims, and their refiled claims, have been dismissed by
the Court. The Company has counterclaimed for damages resulting from the
misconduct of the two former officers of the Division. The Company does not
currently anticipate that the resolution of these matters will have a material
adverse impact on the Company's overall financial condition given its available
cash and short-term investments.
The Defense Contract Audit Agency has also raised the issue of its right to
recapture gain on depreciated items involved in the sale of the assets of the
Division. The Company has denied liability, and this matter has been dormant
since 1990.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
On November 17, 1994, the Company held its Annual Meeting of Stockholders.
The following matters were voted on and approved by the stockholders:
(1) Messrs. William B. Hewitt, Robert A. Kerr and Stuart J. Northrop
were re-elected to the Board of Directors and Messrs.
Melvin L. Cooper, John E. Angle, Gordon S. Dunn, James C. Miller III
and Herbert R. Silver continued to serve as members of the Board of
Directors after the meeting.
Votes Votes Votes Broker
For Against Abstaining Non-Votes
--- ------- ---------- ---------
(2) Proposal to approve the
adoption of the 1994
Incentive Stock Plan 2,742,713 874,035 623,662 938,892
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS:
Exhibit No. 11
Computation of Primary and Fully Diluted Earnings Per Share (Unaudited)
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed for the three months ended
December 31, 1994.
17
THE UNION CORPORATION AND SUBSIDIARIES Item 6
Computation of Primary and Fully Diluted Earnings Per Share (Unaudited) Exhibit 11
(Dollars in thousands, except per share amounts)
Six Months Ended December 31
-------------------------------------------------------------------------------------
1994 1993
-------------------------------------------- ----------------------------------------
Income Income
Number of Net of Per Share Number of Net of Per Share
Shares Taxes Amount Shares Taxes Amount
--------- ------ --------- --------- ------ ---------
Primary Earnings:
Average common shares (based
on weighted average number
of shares outstanding) 5,536,814 6,224,256
Common stock equivalents
(stock options) 102,339 91,030
--------- ---------
Income before cumulative effect
of change in accounting for
income taxes 5,639,153 $2,221 $.39 6,315,286 $1,652 $.26
--------- ---------
--------- ---------
Cumulative effect of change in
accounting for income taxes - - - 6,315,286 1,068 .17
--------- ----- --- --------- ----- ---
--------- ---------
Net income 5,639,153 $2,221 $.39 6,315,286 $2,720 $.43
--------- ----- --- --------- ----- ---
--------- ----- --- --------- ----- ---
Fully Diluted Earnings:
Average common shares (based
on weighted average number
of shares outstanding) 5,536,814 6,224,256
Common stock equivalents
(stock options) 134,244 98,605
--------- ---------
Income before cumulative effect
of change in accounting for
income taxes 5,671,058 $2,221 $.39 6,322,861 $1,652 $.26
--------- ---------
--------- ---------
Cumulative effect of change in
accounting for income taxes - - - 6,322,861 1,068 .17
--------- ----- --- --------- ----- ---
--------- ----- --- --------- ----- ---
Net income 5,671,058 $2,221 $.39 6,322,861 $2,720 $.43
--------- ----- --- --------- ----- ---
--------- ----- --- --------- ----- ---
18
THE UNION CORPORATION AND SUBSIDIARIES Item 6
Computation of Primary and Fully Diluted Earnings Per Share (Unaudited) Exhibit 11
(Dollars in thousands, except per share amounts)
Three Months Ended December 31
--------------------------------------------------------------------------------
1994 1993
----------------------------------- -------------------------------------
Income Income
Number of Net of Per Share Number of Net of Per Share
Shares Taxes Amount Shares Taxes Amount
--------- ------ --------- --------- ------ ---------
Primary Earnings:
Average common shares (based
on weighted average number
of shares outstanding) 5,535,340 6,202,755
Common stock equivalents
(stock options) 140,410 96,329
--------- ---------
Income before cumulative effect
of change in accounting for
income taxes 5,675,750 $1,271 $.22 6,299,084 $ 838 $.13
--------- ---------
--------- ---------
Cumulative effect of change in
accounting for income taxes - - - - - -
--------- ----- --- --------- ----- ---
--------- ----- --- --------- ----- ---
Net income 5,675,750 $1,271 $.22 6,299,084 $ 838 $.13
--------- ----- --- --------- ----- ---
Fully Diluted Earnings:
Average common shares (based
on weighted average number
of shares outstanding) 5,535,340 6,202,755
Common stock equivalents
(stock options) 140,410 100,310
--------- ---------
Income before cumulative effect
of change in accounting for
income taxes 5,675,750 $1,271 $.22 6,303,065 $ 838 $.13
--------- ---------
--------- ---------
Cumulative effect of change in
accounting for income taxes - - - - - -
--------- ----- --- --------- ----- ---
--------- ----- --- --------- ----- ---
Net income 5,675,750 $1,271 $.22 6,303,065 $ 838 $.13
--------- ----- --- --------- ----- ---
--------- ----- --- --------- ----- ---
19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE UNION CORPORATION
(Registrant)
Date: February 13, 1995 By: Melvin L. Cooper
-----------------------------------
Melvin L. Cooper
Chairman of the Board and President
(Chief Executive Officer)
Date: February 13, 1995 By: Nicholas P. Gill
-----------------------------------
Nicholas P. Gill
Treasurer and Secretary
(Chief Financial Officer)
20